{"id":19157,"date":"2024-09-23T14:14:00","date_gmt":"2024-09-23T12:14:00","guid":{"rendered":"https:\/\/eyeonplanning.com\/blog\/advanced-supply-chain-planning-copy\/"},"modified":"2024-09-23T16:16:57","modified_gmt":"2024-09-23T14:16:57","slug":"abc-xyz-segmentation","status":"publish","type":"post","link":"https:\/\/eyeonplanning.com\/blog\/abc-xyz-segmentation\/","title":{"rendered":"How to do ABC\/XYZ segmentation properly for better inventory optimization"},"content":{"rendered":"

By Maarten Driessen<\/a> & William van den Bremer<\/em><\/p>\n

Executive summary<\/strong> – Despite increasing pressure to reduce working capital across many industries, many multinationals still set their safety stock targets as a number of weeks of demand depending on an item’s ABC\/XYZ-segment, ignoring important aspects like lead time and replenishment quantities. This leaves room for improving costs, customer service and working capital. This article explains how to set up ABC\/XYZ-segmentation in the right way and how to successfully implement inventory policies and service level differentiation in your organization. A real-life case study of a manufacturer of cargo securing systems is used to highlight best practices and the benefits gained.<\/p>\n

This article was published in the Journal of Business Forecasting | Summer 2024.<\/em><\/p>\n

 <\/p>\n

Efficient inventory management<\/a> is crucial for any business. While inventory is needed to meet customer service levels, optimize operations and mitigate uncertainties, organizations often struggle to balance customer service levels, inventory costs, and cash tied up in inventory. This challenge becomes even more complex when dealing with a broad portfolio of items with tens or even hundreds of thousands of items. Defining the inventory policy, target service level and replenishment parameters like safety stock or reorder point on an item-by-item basis is a paramount yet time-consuming task. In this article we explain how we have successfully applied inventory policy and service level differentiation techniques, and how to avoid common mistakes.<\/p>\n

The value-add of inventory policy & service level differentiation<\/h3>\n

Striking the optimal balance between costs, customer service and cash is a complex matter. If all cost factors are known and customer service can be expressed in, for example, backorder or penalty costs, newsvendor equations can be used to find the optimal inventory targets (and ROI) per item and hence there is no need for segmentation. The reality is complicated though, as often not all cost parameters are known. Segmentation is a powerful tool to group items with similar characteristics and apply the same inventory policy and service level target, rather than having to manage every item individually. The key challenge is to find a segmentation approach that is simple enough to manage while optimizing the performance of a given group of items.<\/p>\n

Why traditional ABC\/XYZ segmentation often fails for safety stock management<\/h3>\n

Click here to continue reading the full article.<\/a><\/strong><\/p>\n

Curious to explore possibilities for ABC\/XYZ segementation in your organization? Reach out to one of our inventory experts today<\/a>!\u202f<\/span><\/span>\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

This article explains how to set up ABC\/XYZ-segmentation in the right way and how to successfully implement inventory policies and service level differentiation in your organization.<\/p>\n","protected":false},"author":19,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"content-type":"","footnotes":""},"categories":[228,14],"tags":[230],"class_list":["post-19157","post","type-post","status-publish","format-standard","hentry","category-inventory-optimization","category-news","tag-inventory-optimization"],"acf":[],"yoast_head":"\nEyeOn<\/title>\n<meta name=\"description\" content=\"Learn how to set up ABC XYZ segmentation in the right way and how to successfully implement inventory policies in your organization.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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